Vietnam’s Decree 35: Clarifications on Merger Notification Thresholds and Procedures
On 24 March 2020, the Decree No. 35/2020/ND-CP (“Decree 35”) was promulgated by the Government to provide in-depth regulations for the implementation of the current Law on Competition 2018 which has been passed more than a year ago (“Law on Competition”). Decree 35 will come into effect on 15 May 2020 with high expectations to provide businesses with more certainty on applicable thresholds for mandatory merger filing and merger assessment procedure by the regulator.
Further to our legal alert issued on 24 August 2018, we wish to highlight the following key points of Decree 35:
The concept of “control or govern”
For the purpose of merger control, the Law on Competition broadly defines an acquisition as the purchase by one enterprise of all or part of the capital contribution or assets of another enterprise sufficient to “control or govern” the acquired enterprise or any of its trades or business lines.
A comprehensive definition of “control or govern” now can be found in Decree 35 where it is deemed to exist under the following circumstances:
- the acquiring enterprise gains ownership of
- more than 50% of the charter capital of the acquired enterprise;
- more than 50% of the voting shares of the acquired enterprise;
- more than 50% of the assets of the acquired enterprise during all or one business line of the acquired enterprise.
- the acquiring enterprise has one of the following rights:
- to directly or indirectly decide the appointment, removal or dismissal of a majority or all of the members of the board of management, chairman of the members’ council, director or general director of the acquired enterprise.
- to decide the amendment of or addition to the charter of the acquired enterprise.
- to decide important issues during business activities of the acquired enterprise comprising selection of the form of organisation of business; selection of business lines and the geographical area and forms of business; selection to adjust the scale and the business lines; selection of the form and method of raising, allocating and utilising business capital of such enterprise.
This new comprehensive list of criteria provides clarity for the parties to consider in an acquisition process especially if the acquiring entity will gain “control or govern” another enterprise pursuant to the acquisition. One of the key highlights would be that this definition covers indirect control as well as the influence an acquiring enterprise has over the acquired enterprise, which will have to be considered during transaction structuring.
The current Law on Competition provides four broad thresholds to determine when an economic concentration (defined to include mergers, consolidations, acquisitions and joint ventures) will be subject to mandatory merger approval from the National Competition Commission (“NCC”) namely:
- total assets in the market of Vietnam of either of the enterprise (or group of affiliated enterprises).
- total sales turnover or input purchase turnover in the market of Vietnam of either of the enterprise (or group of affiliated enterprises).
- the transaction value (solely applicable to onshore transactions).
- the combined market share of the enterprises.
However, the Law on Competition does not provide any quantitative or qualitative thresholds for each of the above, resulting in some ambiguity on its application. Decree 35 has ultimately clarified this ambiguity by setting out specific threshold figures for special enterprises namely credit institutions, insurance enterprises and securities companies respectively and threshold figures for the other remaining enterprises.
|Criteria||Special enterprises||Other enterprises|
|Credit institutions||Insurance enterprises||Securities companies|
|Total assets in the Vietnam market in the preceding fiscal year||20% or more of the total assets of the system of credit institutions in the market of Vietnam||VND 15,000 billion or more (roughly USD 650 million)||VND 15,000 billion or more (roughly USD 650 million)||VND 3,000 billion or more (roughly USD 130 million)|
|Total sales turnover or input purchase turnover in Vietnam market in the preceding fiscal year||20% or more of the total turnover of the system of credit institutions in the market of Vietnam||VND 10,000 billion or more (roughly USD 430 million)||VND 3,000 billion or more (roughly USD 130 million)||VND 3,000 billion or more (roughly USD 130 million)|
|Transaction value (solely applicable to onshore transactions)||20% or more of the total turnover of the system of credit institutions in the market of Vietnam||VND 3,000 billion or more (roughly USD 130 million)||VND 3,000 billion or more (roughly USD 130 million)||VND 1,000 billion or more (roughly USD 43 million)|
|Combined market share||20% or more of the relevant market|
In the event that the economic concentration exceeds the prescribed thresholds in Decree 35, there is a mandatory notification obligation to the NCC.
Merger control appraisal timeline
Decree 35 provides more detailed insights into the appraisal of merger control in the event there is a requirement to notify the NCC.
The appraisal of merger control is a two-phase process. During the preliminary appraisal, the outcome of such appraisal is a notice issued by the NCC with the determination of whether the transaction (a) is permitted to be conducted, or (b) will be subject to an official appraisal. Accordingly, the transaction will be permitted to be conducted without an official appraisal if it falls into one of the following “safe harbours”:
With regards to horizontal economic concentrations:
- the combined market share of the enterprises is less than 20% in the relevant market.
- the combined market share of the enterprises is 20% or more in the relevant market and either (i) the total market share squares after such economic concentration in the relevant market will be less than 1,800 or (ii) the total market share squares after such economic concentration in the relevant market will be above 1,800 and the increase in the total market share squares in the relevant market both before and after the economic concentration is less than 100.
With regards to vertical economic concentrations: the market share of the enterprises having a relationship with each other in the chain of production, distribution and supply of a specified type of goods or whose business lines provide mutual inputs or provide ancillary support to each other is less than 20% in each relevant market.
In addition, upon expiry of the preliminary appraisal term, which is 30 days after the receipt of a complete and valid application notifying the NCC of an economic concentration, and the NCC not issued any outcome, the economic concentration is deemed to be permitted for implementation.
However, if after the preliminary appraisal, the NCC decides that official review is needed, it will carry out a 90-day official review (which may be extended by written notice for an additional 60 days) before issuing the final decision. Following the official review, the NCC may determine whether (i) the transaction is approved, (ii) the transaction is approved with certain conditions, or (iii) the transaction is rejected.
Decree 35 provides much needed certainty to businesses, especially on the thresholds and safe harbours for merger notification. Businesses intending to invest into any mergers, consolidations, acquisitions or joint ventures should carry out checks on these thresholds and safe harbours, to determine whether merger approval from the NCC is required.
It is pertinent to note that “foreign-to-foreign” transaction may also trigger the mandatory notification requirement to NCC if the transaction substantially lessens competition in any market in Vietnam. Further, it is also essential to take note of this requirement considering that a fine of up to 5% of the total turnover in the relevant market will be applied to an enterprise which participates in an economic concentration and fails to notify the NCC.
If you have any questions on how the new Decree 35 would apply to your intended transaction and whether you should consider a merger filing to the NCC, please contact Tay Zi Li and Hng Hsieh Zhen of ZICO Law Vietnam.
This article is for general information only and is not a substitute for legal advice.